HOW LEASES EXPIRE AND WHAT YOU NEED TO KNOW ABOUT PREMISES CONDITION, TERMINATION, AND SECURITY DEPOSITS

Landlord tenant relationships are largely creatures of contract. The lease document and terms generally set out the business relationship between the parties, circumstances that constitute default, consequences for default, and remedies available to the non-defaulting party. Oral leases may be enforceable, but there are significant legal restrictions that may either render a verbal lease unenforceable. Also, even if enforceable, often times the evidence necessary to prove up the terms of the lease and the elements of the deal struck by the parties is so tenuous and difficult the lease is realistically unable to be proven and consequently unenforceable. Therefore, it is critical any lease (whether for property, realty, equipment, or otherwise) be in writing. Any writing that sets out the terms of the agreement and signed by both parties is generally better than no writing at all.

Leases typically are for a specific time period, and they terminate at the end of that time period, usually without a requirement of notice of termination (unless the lease instrument requires notice of expiration/termination be sent). If the lease contains a provision to extend or renew that is not timely exercised, the lease expires by its own terms.

The most common question I get relates to a lease that expired some time ago, but the parties have continued operating as if the lease were still in effect. If the lease is to last for a specific time period, and the parties' relationship continues beyond the lease term without extending the lease or signing a new lease, then this is what is called a "periodic tenancy", terminable on notice, also known as a "tenancy from month to month."

Under the Texas Property Code, termination of the periodic tenancy relationships require notice of termination. In this situation, the tenant may not simply be called and told to remove his/her belongings immediatly or tomorrow. If notice of termination is given, and the rental period is at least one month, the tenancy terminates on the later of (1) the day given in the notice for termination; or (2) one month after the day that the notice is given. If the rental period is less than one month, the tenancy terminates on the later of (1) the day given in the notice termination; or (2) the day following the expiration of a period equal in length to the payment interval. The notice rules of the Texas Property Code may be altered or removed by the terms of a written lease, which again underscores the imporance of a signed written contract.

Under the common law, when a tenant abandons premises and stops paying rent, the landlord has four possible courses of action available:

• Maintain the duty to lease, suing for rent as it comes due;
• Treat the breach as an anticipatory repudiation, repossess, and sue for the present value of future rentals;
• Treat the breach as an anticipatory repudiation, repossess, and re-lease the property; the tenant may be sued for the difference between the contractual rent the former tenant was obligated to pay and the new rental amount received from the new tenant;
• Declare the lease forfeited and relieve the tenant of liability for future rent.

Landlords have a duty to mitigate their damages in this situation, and must take reasonable and proper action to limit damages incurred for a tenant's breach. Failure to take such action will impact relief available to a landlord for a tenant's breach.

I often have clients seek advice about options available if the landlord won't keep the premises in good repair. Again, the lease instrument typically addresses the duty to repair, so the first thing to review is the lease document itself to ensure notice requirements have been complied with. In a commercial lease, the landlord's duty to repair and the tenant's duty to pay rent are independent of each other. In other words, the landlord's failure to keep the premises in good repair will not justify a tenant's refusal to pay rent. However, if a commercial landlord's failure to repair and upkeep the premises renders the premises unsuitable for the tenant's operations, a tenant may abandon the premises and discontinue rental payments.

In a residential lease, the landlord's duty to repair is conditioned upon the tenant's rent being current a the time notice of a condition needing repair is given. A residential tenant may not withhold rent (or any portion of rent) if the landlord fails to remedy or repair the premises. There is a very limited exception to this rule for failure to remedy/repair certain conditions that materially affect the physical health or safety of an ordinary tenant. If a tenant withholds rent for failure to repair/remedy the premises, and the issue does not fall into the narrow exception, the tenant may be liable to the landlord for actual damages. If the tenant continues to withhold rent after receipt of written notice from the landlord of the illegality of the rent withholding and the penalties of Texas Property Code Section 92.058, the tenant may be liable for an additional civil penalty of one month's rent plus $500.00, as well as the landlord's attorney's fees.

Once a residential lease terminates, the question arises as to what happens to the security deposit most landlords require at the beginning of the lease. A security deposit must be refunded by a landlord within 30 days after the tenant surrenders the premises, and upon receipt from the tenant of a written statement of the tenant's forwarding address. If any deductions are made from the security deposit, the landlord must provide a written description and itemization of the deductions, unless there were rentals due and unpaid when the tenant surrendered the premises and there is no controversy over the amount of the unpaid rent. Deductions are also permitted for damages and charges set out in the lease agreement or resulting from breach of the lease agreement. Normal wear and tear may not be deducted from the security deposit. A landlord that retains the security deposit beyond the time allowed by the Texas Property Code and is found to have acted in bad faith may be liable for $100.00, three times the refundable portion of the deposit, and attorney's fees. A landlord who fails to return the deposit or provide a written itemization of deductions within 30 days is presumed to have acted in bad faith. Bad faith means that the landlord acted in dishonest disregard and implies an intention to deprive the tenant of the refund. Failure to refund the deposit or provide an itemization may also waive the landlord's right to withhold any funds or sue the tenant for damages.

A residential tenant also may not withhold payment of any portion of the last month's rent on the grounds that the security deposit is security for unpaid rent. Such a withholding has been presumed to constitute bad faith, and subjects a tenant to three times the rent wrongfully withheld and the landlord's attorney's fees in a suit to recoup the rent.

Lease relationships are complex, and a working knowledge of rights is critical to both parties for a successful business venture.

MEDIATION AS A DISPUTE RESOLUTION TOOL

Many clients, especially business clients, come to me when faced with a crisis. A contract breach has cost time, money, and work and the situation will only worsen if the breach is not resolved. One effective method of resolving such a dispute early is for the parties to mediate the matter. Mediation can be extremely effective to resolve disputes because it can be done quickly, relatively informally, the mediator is agreed to by both sides to a dispute, and it is one of the least expensive dispute resolution procedures available. Mediation can be either simply proposed and agreed to by the parties, or may be required by contract (mediation is often required before filing suit or demanding arbitration by many contracts).

A mediator is typically agreed to by both/all parties to a dispute. The mediator is not a judge or arbiter. He/she has no authority or power to order any party to act or pay money. The mediator is there to facilitate communication between the parties; to get the parties in one office and get them talking. He/she is not there to decide who wins or loses. The mediator's primary focus is to help the parties compromise and come up with solutions that will get the parties past the dispute and back on a working and productive relationship.

Mediators are usually lawyers, and many specialize in specific areas of law/industry. For example, a mediator may specialize in construction industry law and disputes, commercial lease and real estate disputes, patent/trademark, personal injury, family law, or any number of specialties. It is an excellent idea to seek out a mediator that has expertise in the industry and type of dispute you are faced with. It is also important the mediator have been trained in dispute resolution.

Every dispute has human elements to it. People look at the same situation from more than one perspective and have different opinions. Mediation involves not just reciting facts, contract language, and right/wrong. It also involves psychology and emotion. By the time the dispute gets to a mediator, more often than not both sides are angry. This anger has to be addressed and dealt with, as it is impossible to discuss a situation and negotiate or explore solutions while feeling angry. This is why it is critical a mediator be experienced, trained in dispute resolution, and have expertise in the industry/area of law at issue.

Mediation can typically be scheduled for half-day or full-day sessions. However, every mediation is different and takes on a personality and life of its own. No two mediations are ever the same, because the disputes and people are always different. Therefore, mediations may last hours or even days. Most mediators will not quit simply because a solution can't be found the first try, or by 5:00. I have been involved in mediations that lasted well past midnight, settled with some additional telephone conferences after we adjourned the mediation, involved more than one mediation session, and involved very creative settlement terms that never would have come to fruition without the assistance of a mediator.

Mediation prior to initiation of litigation or arbitration may be a very effective way to resolve a dispute quickly and inexpensively.

E-Discovery Issues Critical for Corporate Parties in Litigation

More and more companies are discovering that litigation not only involves preserving copies of contracts, invoices, and records. It also involves extensive search, retrieval, preservation, and review of email, text messages, website data (new and archived), intermal memoranda, and independent forensic review of computer hard drives and servers. The ease and efficiency computers, email, and the internet have bestowed upon corporate performance and efficiency have also made discovery, particularly in federal court where parties may be subject to mandatory disclosure, a complex and often expensive undertaking for both sides to litigation.

Once a company is put on notice of a claim, it has a duty under current federal law to place an immediate hold on any document/information destruction processes that may impact or touch upon information in that claim. Failure to do so can result in sactions for improper handling/destruction of evidence. See the Zubulake line of cases.

The duty to preserve attaches when a party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation. Once a company reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a "litigation hold" to ensure the preservation of relevant documents. A party must preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request. This duty to preserve extends to any documents or tangible things made by individuals "likely to have discoverable information that the disclosing party may use to support its claims or defenses, and this includes documents prepared for those individuals (such as attachments to emails, documents identified in emails, etc.) Backup tapes may also have to be preserved. You should bring counsel in as quickly as possible to determine the extent materials and information must be preserved to ensure proper preservation procedures are timely implemented.

Failure to do so can and has resulted in some very serious court sanctions against offending companies:

Vacated jury verdict due to delay in producing e-data. Residential Funding v. DeGeorge Financial, 306 F.3d 99 (2nd Cir. 2002);
Adverse Inference Jury Instruction given where employee sent emails to supervisors complaining about sexual harassment and employer continued routine destruction of email, consistent with company policy, until suit was filed. Broccoli v. Echostar Communications Corp., 2005 WL 1863176 (D. Md. August 4, 2005); Negligent destruciton of e-data can give rise to adverse inference. Mastercard v. Moulton, 2004 WL 1393992 (S.D.N.Y. June 16, 2004);
Email custodian not allowed to testify at trial; Philip Morris fined $2.7 Million where Philip Morris erased email after a preservation order was issued. U.S. v. Philip Morris, No. 99-2496 (D.D.C. July 21, 2004);
$29 Million jury verdict with $20 Million in Punitive Damages for discrimination plaintiff after adverse inference instruction given regarding destruction of computer backup tapes. Zubulake v. UBS Warburg (S.D.N.Y. April 6, 2005).

LEASES ARE NOT FORMS AND SHOULD NOT BE TREATED AS "STANDARD" DOCUMENTS

I occasionally have clients request a simple "form" lease, for various purposes ranging from commercial leases to simple residence tenants. Sometimes, a standard lease that can be purchased at any office supply or book store will suffice for simple, short-term, informal situations. However, parties to a lease must understand that the document's terms will govern nearly every aspect of their business relationship; including and especially if the relationship sours. Leases should be looked at with an eye toward the future, not with a focus on the present. The two questions answered by leases are 1) what do I have to do now; and 2) what happens if [insert situation] occurs. Many disputes between landlords/tenants or lessors/lessees would not arise if the parties took a few minutes to sit down together and look at the lease when they sign it. Before signing a lease, parties should both understand the agreement, consequences if the terms can't be met, and discuss dispute resolution procedures to be utilized if the parties do not want the lease to terminate without some effort to cure the breach. It is worthwhile to invest some time and funds with a lawyer at the beginning of the relationship, rather than be faced with a crisis situation where

• a large retainer may be required to send demand letters mandated by a lease,
• evict a delinquent tenant,
• repossess equipment,
• engage in arbitration,
• or take other formal steps to enforce the lease.

And all this happening at a time when lease payments haven't been received for some period of time. Leases, like many legal documents, govern your business and specify what happens during crisis. Give these important instruments their due consideration.

WAL-MART SEEKS TO REVAMP WORKERS' SCHEDULES

Early this year, Wal-Mart will utilize computer scheduling to move workers from predictable set shifts to a system based on the number of customers in a store at a given time. This emphasizes the struggle employers face to increase profit, productivity and customer satisfaction; which must necessarily be balanced with a workforce comprised of people. Family welfare and individual needs will inherently conflict with Wal-Mart's proposed scheduling change. Employees will be faced with multiple challenges by the new system; such as scheduling childcare. Unpredictability in work schedule is extremely difficult for high-wage professionals to accommodate, let alone hourly workers dependent upon daycare.

As a consumer, I can't count the number of times I have marveled that there were only two cashiers checking for what seemed to be twenty waiting customers. I've also noticed periods where five employees were either standing idle or engaged in "busy work" during a lull in business. I have often wondered if a system could be devised that would staff precisely the right number of employees at exactly the time they were needed - like "just in time" inventory delivery, but for employees. However, when balancing productivity at this level against the ability of hourly workers to accommodate such a scheduling scheme, it will be very interesting to see how Wal-Mart's experiment fares. The jury may still be out for the moment, but the reception so far has been mixed at best.

http://blogs.wsj.com/juggle/2007/01/03/whats-worse-long-hours-or-unpredictable-hours/

http://users1.wsj.com/lmda/do/checkLogin?mg=wsj-users1&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB116779472314165646.html%3Fmod%3Dhome_whats_news_us

ARBITRATION VERSUS LITIGATION IN CONSTRUCTION DISPUTES

Whether you are an owner, general contractor, subcontractor, or supplier, chances are at some point you have been a party to a contract with an arbitration clause. These clauses are anything but boiler-plate and standard, and should be carefully reviewed. Also, many in the industry are discovering that arbitration is not all it was hoped to be. It can take longer and cost more than litigation in some cases. Whether to arbitrate or litigate is a decision that should be made with the advice of experienced legal counsel, weighing the facts and issues particular to an individual dispute.

This is not a situation where one choice is clearly and always better or preferable to the other, particularly where other dispute resolution procedures (such as mediation or collaboration) may be warranted - such as when disputes arise which could delay the project and immediate resolution is desired and necessary. Also, the specific verbage of your clause should be carefully drafted by your lawyer. It may be advantageous to draft an election to arbitration (i.e. arbitration at the request of one or both parties to the contract), rather than require it in all instances. Once a dispute arises, this clause will dictate the options available to resolve the dispute if the parties can not work it out themselves. Serious thought should be given to contract terms that will govern when crisis arises.

http://www.constructionweblinks.com/Resources/Industry_Reports__Newsletters/Dec_18_2006/arbi.html